In today’s briefing:
- China Catering Sector: In Search of Alpha
- Fengxiang (9977 HK): SPA Completed. Now For The Unconditional MGO
- Fengxiang (9977 HK)’s Share Transfer to PAG Complete, Unconditional MGO
- India Channel Insight #46 | Bata India, Campus Activewear
- TMT Left for Dead Long Ideas: Match
- Netflix AVOD Not Chill
- Selected European Holdcos and DLC: November/Mid-December‘22 Report
- Zx Inc Pre-IPO Tearsheet
China Catering Sector: In Search of Alpha
- Sentiment driven rally is fading. Although COVID exit remains swing factor, individual company’s performance will increasingly be driven by their business models.
- Our proprietary store expansion framework suggests divergent growth outlook for major players – stretched for Haidilao, moderate for Jiumaojiu and Yum China, and ample for Xiabuxiabu.
- Xiabuxiabu is our top pick due to its strong turnaround not yet priced in depressed valuation. We also like Yum China but stay cautious on Jiumaojiu and Haidilao on valuation.
Fengxiang (9977 HK): SPA Completed. Now For The Unconditional MGO
- A little over two months since PAG Capital won the judicial auction to acquire 70.92% of Shandong Fengxiang (9977 HK), the acquisition has now cleared all regulatory clearances, including SAMR.
- PAG will now be required to make an unconditional Offer for all H-shares at HK$1.5132/share. Separately, PAG intends to delist Fengxiang which involves Scheme-like delisting resolutions.
- This is done. The timing for approving the SPA was bang-on with my expectation.
Fengxiang (9977 HK)’s Share Transfer to PAG Complete, Unconditional MGO
- PAG completed the auction procedures for the acquisition of a 70.92% stake in Shandong Fengxiang (9977 HK). This will trigger an unconditional MGO at HK$1.5132 per H Share.
- As PAG has no compulsory acquisition rights, it will also seek shareholder delisting approval. The MGO is not conditional on the approval of the delisting resolution.
- The composite document is to be despatched on or before 28 December. At last close and for an end-of-January payment, the gross and annualised spread is 5.1% and 65.9%, respectively.
India Channel Insight #46 | Bata India, Campus Activewear
- Consumer sentiment is soft, but competition is limited for both Bata India Ltd (BATA IN) and Campus Activewear (CAMPUS IN)
- Bata enjoys good relationships with its distributors and franchisees, traction for offline sales channels is strong.
- Campus is in an aggressive expansion mode, with leadership in the sports shoe segment driving sales.
TMT Left for Dead Long Ideas: Match
- Match is down 70% in 2022, and down 50% relative to the S&P.
- Despite impressive new CEO and a self help story, shares have continued to underperform rival Bumble and the market by wide margin on macro concerns.
- 13x Forward EBITDA for a company forecast to grow EBITDA at a 16% CAGR through 2025 (we think closer to 20%), has 35% EBITDA margins and $1B in annual FCF
Netflix AVOD Not Chill
- Multiple negative data points have come out reflecting limited initial uptake for Netflix’s ad-based tier.
- (We think) Netflix lack of AVOD uptake is due to it being fully saturated in its major markets wheras competing services starting from scratch have higher AVOD uptake.
- Lack of incremental subs from AVOD points towards a weaker than expected 4Q22 and downside to guidance…not good for a stock that has ripped since 2Q22 earnings.
Selected European Holdcos and DLC: November/Mid-December‘22 Report
- Discounts to NAV of covered holdcos have showed a mixed performance during November and the first half of December, with the same number of spreads widening and tightening.
- Discounts to NAV (31 October): C.F.Alba, 49.5%; GBL, 35.7%; Heineken Holding, 18%; Industrivärden C, 13.5%; Investor B, 15.5%; Porsche Automobile Holding 40.4%. The spread of Rio Tinto DLC widened to %.
- Spreads tend to widen in bear markets but short-term recoveries provide opportunities on tightening discounts. Recommended trades are: GBL, Rio Tinto (DLC), CF Alba (long position).
Zx Inc Pre-IPO Tearsheet
- Zx Inc (ZX CH) is looking to raise about US$100m in its upcoming HK IPO. The deal will be run by CICC and China Securities International.
- Zx Inc runs three different businesses, namely an interactive entertainment business (Tan Wan), an instant food brand (Zha Zha Hui) and pop toy business (Bro Kooli).
- Its interactive entertainment business Tan Wan focuses on publishing game products while while leveraging its precision marketing, in-depth operation and brand incubation capabilities.
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